6 Questions People Have about PEOs

Professional Employer Organizations, or PEOs, have become more and more popular as business owners become aware of the benefits of using such an organization. As with all newer trends, many business owners or managers are confused as to what a PEO is and how their own business might benefit from their services. These common questions about PEOs should resolve much of the confusion you may have. 

What is a PEO?

A Professional Employer Organization is a resource for businesses that offer a variety of human resource-related services. These can range from pre-employment screenings and developing employee protocol to running payroll and managing taxes. The services a PEO provides can vary depending on the organization, however, many offer similar services, including paying wages and taxes, helping with legal compliance, providing access to benefits, developing employee policies and procedures, and helping with new hire paperwork.

Who can hire a PEO?

Anyone can hire a PEO, although small to medium businesses tend to be the most common clients. The average client of a PEO employes 19 individuals. The type of business that utilizes the services of a PEO range greatly, and there is no set parameter for which types of businesses can utilize these services.

Does the PEO take over the business?

A PEO is like a hired contractor, so they do not take over the business. However, the PEO may act in a managerial way in order to perform the services requested. For example, PEOs that are tasked with performing payroll functions will need to be given the authority to perform their tasks. However, the PEO will largely deal with tasks and issues related to employment, while you as a business owner will remain in charge of overseeing the entire business as a whole.

Do PEOs help with taxes?

If a PEO has been tasked with performing payroll functions, they will be responsible for helping with taxes. This means ensuring that any applicable sales tax, local, and federal tax collected from employees and customers are paid quarterly. Additionally, a PEO can help with confusing wage garnishments and child support that employees often have. 

Not all PEOs are qualified to perform year-end tax preparation, so it is important to determine whether your year-end tax reporting should be left in the hands of your PEO, or taken to a qualified tax professional.

Can I offer my employees benefits through a PEO?

Because of the way a PEO is structured, they are able to offer your employees benefits that you likely would not be able to do on your own. These can include 401(k) plans, dental insurance, health insurance, life insurance, and other such benefits. Typically the costs and actual benefits are competitive with the offerings of other large companies.

What if I change my mind?

If you are not satisfied with your PEO, you should review your contract for the particular guidelines for canceling your services. It is a good idea to ensure the details of canceling services before you sign a contract to begin with. Some PEOs will offer a trial period in order for you to get a feel for whether a PEO is right for you. Consider asking about a trial before you sign up for any long-term contracts.

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